The process of foreclosure only happens when the home owner fails to meet their mortgage obligation for a minimum of three consecutive months. Foreclosure is a legal action available to mortgage lenders for them to recoup their losses should their debtor cease paying for their monthly amortizations.
A process called acceleration takes place meaning that the debtor now has to pay the balance of the loan not just the overdue amortization. The process of foreclosure can take many forms but the most common forms of foreclosures are by power of sale and judicial foreclosures.
Judicial Foreclosures
Judicial foreclosures are undertaken by the courts. Once the court determines that the default and the acceleration are valid the home is then scheduled for a public auction. The proceeds of the auction are distributed among holders of liens on the property starting with the main mortgage holder.
Power of Sale Foreclosures
The power of sale process of foreclosure does not involve the courts. The mortgage holder is the one carrying out the process from sending the notice of foreclosure to evicting the home occupants then reselling the property either by auction or through real estate companies.
Foreclosures can be very expensive and time consuming and they all result in loss on the lender's end. And so lenders are oftentimes open to short sales. This type of sale happens even before the foreclosure. Homebuyers seek their lender's permission to sell the home for a price that is lower than the remainder of their debt.
Many people in the housing industry are quite familiar with the process of foreclosure. Real estate companies wanting to boost their inventory of homes often turn to these properties to build their portfolio. Many buyers are likewise enticed by the low prices at which these homes are sold for. Foreclosures are likewise seen as a good investment that can potentially yield huge profits when handled correctly.